Can a lawyer take an ownership stake in a client entity plus a contingent fee as payment for forming it and representing it before a government body?

Plain-English summary

The committee considered an attorney who forms a corporate or partnership entity for a client and then represents that entity as an applicant before a local governing body seeking a cable television franchise. The attorney proposed to take, as legal fees, a proprietary interest in the entity and a separate fee contingent on the successful outcome of the franchise application.

The committee concluded that this was not improper, so long as the client consents after full and adequate disclosure in accordance with DR 5-104, and the requirements of DR 2-105 are met with respect to the contingency fee. It cited DR 5-103, DR 5-104, and DR 2-105.

Currency note

This opinion was issued in 1984, under Virginia's former Code of Professional Responsibility, before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. The committee note records that under current Rule 1.8(a), a lawyer may not enter a business transaction with a client unless the client is given an opportunity to seek independent advice and there has been full disclosure and consent in writing. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer take an ownership interest in a client's company as a fee?

A: Under this 1984 opinion, yes; taking a proprietary interest in the client entity was not improper if the client consented after full disclosure under DR 5-104.

Q: Could the lawyer also charge a contingent fee on the same matter?

A: The committee allowed a separate contingent fee tied to the franchise outcome, provided the requirements of DR 2-105 were met as to the contingency.

Q: What does current law require for this kind of arrangement?

A: The committee note states that under current Rule 1.8(a), the client must be given an opportunity to seek independent advice, and there must be full disclosure and consent in writing.

Background and rules framework

The opinion treats a lawyer's acquisition of an ownership interest in a client entity as a business transaction with the client governed by the former Code's DR 5-103 and DR 5-104, with the separate contingent fee governed by DR 2-105. The committee note maps the business-transaction question onto current Virginia Rule 1.8(a), corresponding to ABA Model Rule 1.8(a), and the fee aspect to Model Rule 1.5.

Citations and references

Rules of Professional Conduct:

• DR 5-103, DR 5-104 (business transactions with a client; proprietary interest) (former Code)
• DR 2-105 (contingent fees) (former Code)
• Virginia Rule 1.8(a) (business transactions with a client) (cited in the committee note)
• ABA Model Rule 1.8(a) / Model Rule 1.5 (business transactions; fees)

See also

• VA LEO 783: A Settlement Attorney Purchasing the Property
• VA LEO 814: A Lawyer's Personal Interest in the Litigation

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/0577.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

LEGAL ETHICS OPINION 577

CONFLICT OF INTEREST-CORPORATE LEGAL FEES.

It is not improper for an attorney, who forms a corporate or partnership entity for a client and who represents the entity as an applicant before a local governing body seeking a cable television franchise, to accept as legal fees a proprietary interest in the entity and a separate fee contingent upon the successful outcome of the franchise case, so long as the client consents after full and adequate disclosure in accordance with DR:5-104, and the requirements of DR:2-105 are met with respect to the contingency fee. [DR:5-103, DR:5-104, DR:2-105]

Committee Opinion
April 30, 1984

Legal Ethics Committee Notes. – Under Rule 1.8(a), a lawyer may not enter into a “business transaction” with a client unless the client is given an opportunity to seek independent advice, and there has been full disclosure and consent in writing.